JPMorgan Natural Resources -48% down but still hanging on

TakeCareOfThePennies_2

noggin1980 wrote: »

it was the way you treated a poster that for all you know has acted completely rationally

His original post was in 2013 when he said he was 48% down and asking what to do, now he's come back saying he's 60% down and asking what to do.

I'm not too sure that's terribly rational portfolio management ? Its more like coming here for confirmation bias that he's doing the right thing by clinging on for dear life...

jabbahut40, if I'm wrong, please forgive me. I'm just stating the impression I get from your posts.

Linton

TakeCareOfThePennies wrote: »

Oh for heavens sake !

Look at the chart of this fund, look at the story surrounding resources.... a "sensible investor" would have seen this one coming and cut their losses a long time ago.

Why? Do you believe the world is not going to need natural resources in the future? Or perhaps you believe we have a future of permanent overabundance? How far back does your chart go? 5 years? Perhaps 20 would be more illuminating.

Natural resources prices have always been volatile throughout history. If you have an asset that is wildly volatile but cant go bust under any except the most extreme scenarios what do you do? Assuming that you dont have the powers of Mystic Meg the best answer is surely to hold a fixed % in your portfolio, steadily sell as the price rises and steadily buy as the price falls. In that way on average you are selling high and buying low - rather better than the reverse.

If fluctuations frighten you dont hold the fund. They dont frighten me so I do and have done reasonably well from it. But I wouldnt suggest anyone holds more than 5-10% in their portfolio, and that is only if they arent susceptible to mad panics.

TakeCareOfThePennies_2

Linton wrote: »

If fluctuations frighten you dont hold the fund.

We're not talking about fluctuations here !

He opened this thread in 2013 saying was already down 48%, now he's come back saying he's 60% down.

That's not fluctuations. That's running your losses for questionable reasons.

As for my view on natural resources, its bearish enough in the short/medium term to know that its going to be a very,very,very long wait to recover from a 60% loss because the long term isn't exactly full of rampant bulls. jabbahut40 is going to be waiting double digit year figures.

puk999

TakeCareOfThePennies wrote: »

I can count on one hand the number of times I've seen the hard level in action over the years. I've seen things reach the soft level a few more times before they turn around and go back in the right direction.

Psst! Take one of these half an hour before "trading":

bowlhead99

TakeCareOfThePennies wrote: »

And thereby you quote the classic reason for failure to cut losses.... the belief it will go back up !

There is a difference between buying cheap (i.e. with limited downside risk because you think you're at or near the bottom) and taking a great big loss and hoping things will change direction, hopefully eventually break-even, and then hopefully give you some profit over that.

Not sure if you're deliberately missing the point.

Let's say your soft review point on a £1 fund is at -20%, medium review at -35% and hard stop at -50%. Jabba reviews at -35 (65p) and decides he will stay in on grounds of fundamentals for the long term. He mistimed his entry but what's done is done. You agree to wait a bit longer but eventually cut out at -50 to avoid further loss. Jabba stays until -57% or 43p. Meanwhile I buy in at 45p.

At 43p, I'm down marginally, Jabba is down heavily, and you have realised a loss but exited so you are no longer in at all.

Your view of the world is that natural resources are down a lot so there is no point staying invested because it will take ages to get paid back your losses and break even and then eventually make a profit on the original badly timed entry price. You cut that nasty red number out of your portfolio and start again with a black number in a different fund, maybe biotech instead of natural resources this time. You have 50p to invest and hope it goes up. If it drops to 40p or 30p presumably you will cut that and start again somewhere else.

Meanwhile I invest 45p in natural resources and watch it turn into 43p but am fine as I feel it is near the bottom. Jabba ends up with 43p invested in natural resources. If he wants, he could have reset his portfolio chart at 45p just like me. Our prospects from here are the same, we have similar money invested in the same asset. Both of us may do better from here than you with your biotech.

But you think he is deluded if you look at his chart, while presumably you think I am ok , a savvy investor with minimal losses.

Say he bailed at 43p. If I am buying at 45p and am a savvy investor there is no reason why he should not be a buyer at 43p. If he would buy at 43p, there's absolutely no reason why he should first sell at 43p to realise a loss and artificially "cleanse" his track record chart.

This does not mean it wouldn't take ages for him to make enough from here to get back up to his arbitrary entry point. The goal is not to recover your entry point "and hopefully make some profit over that". The fund and its directors and managers don't know or care your entry point, it's not a target they're aiming for. Their goal is a good long term performance from HERE.

jabbahut40 is between a rock and a hard place. Neither option is particularly attractive down at this level of losses. The only positive thing that's going to come out of this he'll have learnt a valuable lesson for the future !

What is the lesson - don't invest in volatile funds and get unlucky with timing? Difficult. Why is the option of holding a fund at 43p unattractive? I just paid 45 and thought it attractive enough?

TakeCareOfThePennies_2

bowlhead99 wrote: »

Not sure if you're deliberately missing the point.

Thanks for your lengthily post, but I'm not sure if you're deliberately missing the point either !

So therefore, because, much like the pre-election debates, this one could run and run, I think we'll need to agree to disagree. I don't think there's much point going round in circles hoping the cows eventually return.

There are two points of view on the jabbahut40 story. Both equally valid, but both equally unacceptable to the opposing party. Thus consensus is unlikely to ever occur.

I wish jabbahut40 the very best of luck, boy does he need it !

bowlhead99

Below is a pretty random portfolio of specialist funds from last April. I have them on a watchlist because a few weeks into last tax year, a friend who had not really invested in S&S before said they wanted to put 10k of play money into an ISA to see how it all worked, and was only tempted by the ones which could give strong movements, something to look in on every month and see a change for better or worse.

The guy has more money than sense and was going to put it all in a UK microcap fund because "it looked like a good performer" on the HL marketing list. I suggested that attitude was a bit of a recipe for disaster and said don't put more than a couple of thousand in that fund, stick a thousand in a strategic bond fund so when something tanks you can top it up, and let's find you five other specialist funds to use up the rest of your cash, and see what happens.

Results almost a year later:
£2k Baillie Gifford Emerging Markets Growth: +22.03%
£1k GLG Technology Equity: +32.9%
£1k JPM Natural Resources: -18.76%
£1k M&G Optimal Income: +3.87%
£2k Marlborough UK Microcap Growth: -8.74%
£1k The Biotech Growth Trust: +76.47%
£2k Threadneedle European Select: +19.59%

Total £10k now £11.6k, blended return +16%

So, a haphazard selection of specialist funds plus a small bond allocation gave an acceptable overall return, as it turned out. The one year return on a mix like that is only luck anyway. A return of -20% to +20% not at all unexpected for single sector equities and the +33% and +75% show how quickly specialist funds can move in a short time frame - a year is only a tenth of the time a serious investor would hold.

As it happens, JPM was the biggest loss, double the UK Micro loss. It is only a paper loss. Going on the volatility of the other funds it would not be unusual if it happened again next year or if it totally reversed next year. Anything can happen to specialist holdings. If you bail at -20 or -30 you have to gain +25 or +43 wherever you go next, to break even. There is nothing to say you couldn't achieve that by sitting right where you are and waiting for that fund to have its day in the sun.

If all your money was in that fund, you would be a braver man than I. But having it as part of a portfolio, whether £1k or £0.5k or £0.25k in a £10k portfolio, you don't need to run for the hills if it drops. In fact, on the contrary, if it was £1k out of £10k and it drops to £0.8k out of £11k or £12k, why not top it up?

Of course, TakeCareOfThePennies is really smart, so he would have bailed on the JPM fund after 6 months when it hit -20% and the writing was on the wall. Jabba watched his £520 in JPM turn into £430 over the year which makes him a laughable investor because it will now take ages to get his original £1000 back and then a profit on top. Do I have that right, TCOTP?

To summarize, Jabba should definitely leave this alone and is now somehow between a rock and a hard place, there's no point continuing, he might as well top himself. But for the rest of us it's fine if we can see it's a reasonable specialist holding for the high risk part of our portfolio.
:beer:

zolablue25

Wow, this thread has taken a fair old turn!

It would appear from this discussion that there are different people that approach investing in different ways, some of which are better than others (not saying which is which as I'm not qualified to do so).

Now, if you combine Jabba's situation with the highly regarded (as far as I understand, anyway) portfolio rebalancing strategy he would now own a shed load more JPM rather than have got himself out altogether? This is where a rebalancing strategy requires cohones of steel!

masonic

zolablue25 wrote: »

Now, if you combine Jabba's situation with the highly regarded (as far as I understand, anyway) portfolio rebalancing strategy he would now own a shed load more JPM rather than have got himself out altogether? This is where a rebalancing strategy requires cohones of steel!

Well, if you've not gone too overboard with a fund like this, say you have a 10% allocation (which I'd consider to be at the high end), and say it has fallen 50% so that your 10% allocation has resulted in you suffering a loss of 5% of your portfolio. Meanwhile, the other 90% of your portfolio went up 10%, so you have a net 4% gain and you are considering selling 5% of your better performing funds to reinvest into the JPM fund. That doesn't sound too scary.

Compare that with the situation where you're considering this investment in isolation and you are staring at your 50% loss and trying to summon up the courage to throw some more money into it in order to average down.

The former approach is much less emotionally difficult.

zolablue25

masonic wrote: »

Well, if you've not gone too overboard with a fund like this, say you have a 10% allocation (which I'd consider to be at the high end), and say it has fallen 50% so that your 10% allocation has resulted in you suffering a loss of 5% of your portfolio. Meanwhile, the other 90% of your portfolio went up 10%, so you have a net 4% gain and you are considering selling 5% of your better performing funds to reinvest into the JPM fund. That doesn't sound too scary.

Compare that with the situation where you're considering this investment in isolation and you are staring at your 50% loss and trying to summon up the courage to throw some more money into it in order to average down.

The former approach is much less emotionally difficult.

That's a good point that I hadn't fully appreciated. I intend to have 10% of my portfolio in this fund, but may change that when I have my portfolio finalized. Maybe a tad high, but that's probably the gambler in me.